🩺 Can Cerner Unlock Healthcare For Oracle?

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🩺 Cerner: Oracle’s Healthcare Foray?

In its largest-ever deal, Oracle (ORCL) is acquiring Electronic Medical Records (EMR) company Cerner Corporation (CERN) for $28.3B in cash. Needless to say, Cerner’s shareholders rejoiced, with shares witnessing their best single-day surge since 2012. Oracle’s shareholders, however, are not convinced. (Tweet This)

Architecture For Health

PGI & Associates was named after the initials of its founders, Neal Patterson, Paul Gorup, and Cliff Illig, back in 1979. The company changed its name to Cerner in 1984, went public in 1986, and by 1990, its systems were installed in over 250 sites.

The company began developing Health Network Architecture (HNA) components, an integrated IT system to automate the healthcare process at client sites. Clients could purchase either individual components or the whole system at once. By 1994, it had over 30 clients who had purchased the entire HNA.

In 1997, HNA was upgraded with its software offerings integrated into a single architecture and renamed Cerner Millennium. Millennium allowed the company to cross the $1B mark in revenue by 2005, up from $245.1M in 1997.

Over the years, Cerner has faced its fair share of controversies too. In 2001, a harsh letter from CEO Patterson to 400 managers of the company challenging them to shape up was leaked, and Patterson was accused of poor management. Cerner’s stock tanked 22% over the next three days in response.

In 2002, the UPMC Children’s Hospital of Pittsburgh installed Cerner’s computerized health system, but the changes in workflow made it harder for doctors and nurses to do their jobs in emergencies. One study attributed the increase in mortality rates for the vulnerable patient population squarely to the software upgrade.

In 2014, a UK Coroner ruled that a three-year-old heart patient died due to delays in his treatment at the Bristol Royal Hospital for Children. The Coroner blamed the newly installed Cerner Millennium booking system for the child not receiving treatment.

Enter Oracle. This cloud enabler has been effectively sidelined while market leaders Microsoft and Amazon have run away with domination in the cloud. As the healthcare sector gears up to spend $15.8B by 2023 as part of the move to the cloud, Oracle plans to be there with its own set of solutions. What better than having Cerner’s software as part of its portfolio of offerings?

All Set To Gorge On Cerner

As rumors of an impending deal made rounds, Cerner’s shares rallied the most in almost a decade. The deal was finally announced on Monday, with Cerner valued at $28.3B. This is Oracle’s largest-ever deal in its four-decade history.

Oracle will pay $95 per share to shareholders of Cerner, a 20% premium to Thursday’s closing price. For the quarter ended November 30, Oracle had $17.93B in cash on its books. The transaction is expected to be immediately accretive to its earnings in the first full year after the deal closes in 2022, subject to meeting regulatory approvals and certain closing conditions.

The deal will mark Oracle’s foray into healthcare technology. Cerner will be a separate business unit within Oracle, and its hands-free voice assistant will become the primary interface to Cerner’s clinical systems.

In 2019, Cerner had partnered with Amazon’s cloud division to develop programs trying to predict medical diagnosis or recommend courses of treatment for patients. Whether these will continue to be hosted on AWS or moved onto Oracle’s cloud infrastructure or the deal will fall apart entirely is unclear.

Oracle isn’t the first mover in this space, even with this deal. Back in April, Microsoft acquired speech-recognition pioneer Nuance Communications for $19.6B to gain AI technology focused on helping doctors predict the needs of patients and upgrade the digital record keeping of hospitals.

Oracle’s stock fell 6% on Friday as rumors of the deal swirled. The stock fell a further 5% after the deal was announced. A lot depends on whether Oracle can make a compelling proposition to healthcare clients as a result of assimilating Cerner. In the meantime, Oracle’s shareholders are searching for meaning in this deal while their counterparts at Cerner are busy celebrating this sudden windfall.

Market Reaction
CERN ended at $91.79, up 1.24%. Shares are up 18% this year.

Company Snapshot 📈

CERN $91.79 +1.12 (1.24%)

Analyst Ratings (19 Analysts) BUY 26%  HOLD 74%  SELL 0%

Newsworthy 📰

End: Tesla CEO Musk says he is ‘almost done’ with stock sales; shares rally (TSLA +7.49%)

Open: American Airlines launches rights issue plan to protect $16.5B tax benefit (AAL +0.77%)

Cleared: FDA authorizes Pfizer’s Covid treatment pill, the first oral antiviral drug during the pandemic (PFE +1.02%)

Later Today 🕒

  • Sanderson Farms Inc. Earnings (SAFM)
  • 7:00 PM IST: Initial Jobless Claims
  • 7:00 PM IST: Core Inflation
  • 8:30 PM IST: New Home Sales

Today’s Market Terminology: Market Breadth

Market breadth is a ratio used to compare the total number of stocks that are rising against the total number of stocks falling. The purpose of this is to determine the overall direction in which the market is moving

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